Unclaimed property feeds state coffers at growing rate

By Michael Mishak

Monday, Dec. 4, 2006 | 7:21 a.m.

Tens of millions of dollars in unclaimed property flow into the Nevada treasurer's office annually.

And, due to the shortcomings of the office's computer system, staffing shortages and other factors, the vast majority of that money is destined to remain just that - unclaimed.

As unclaimed property revenues have steadily grown in the last four fiscal years, rising from $25.2 million in 2003 to $38.9 million in 2006, the percentage of the funds being returned to their rightful owners has remained largely static, even dropping in some years.

That would seem to suit the Nevada Legislature and state Treasurer Brian Krolicki, whose office has controlled the program since 2001, just fine.

Most of the money, which comes from inactive bank accounts, unclaimed estates, abandoned paychecks and other sources, gets dumped into the state's general fund, in addition to helping to keep its college scholarship program afloat.

Overall, the state's unclaimed property division holds more than 666,000 properties valued at $203.9 million. Those properties include lost cashier's checks and money orders, misplaced stock holdings, overlooked utility deposits and unredeemed gift certificates, among others.

Because the property is held in trust, owners never lose their right to stake a claim. But chances are that hundreds of thousands of the property owners aren't even aware of the money they're owed.

The relatively low percentage of dollars paid out from the property received annually seems to bear that out. Between fiscal 2003 and 2006, the annual percentage of dollars paid from each year's total receipts has been 25.8 percent, 20 percent, 22.9 percent and 18.5 percent ($7.2 million of $38.9 million).

Some suggest the fact that, to take liberties with Las Vegas' famous advertising slogan, what comes here, stays here may be no accident.

Other than the free media that the treasurer can drum up, outreach efforts by the unclaimed property division are limited to two major newspaper advertisements a year that list owners whose property the state has received. Absent that, the onus is on owners to visit the treasurer's Web site.

Still, Krolicki, who was elected lieutenant governor last month, insists that as treasurer, he made promoting unclaimed property a top priority.

"As a treasurer, I feel responsible for generating as much appropriate revenue as I can to help balance the budget," Krolicki said.

"But I think we've been overly aggressive in trying to pay back money versus trying to find that revenue. We have our priorities right. It's about people, their money and what to do with them."

But while the amount of unclaimed money coming into Krolicki's office has more than doubled since 2001, staffing levels have remained the same. Besides a deputy treasurer and a chief administrator, the nine-member staff consists of only four auditors and three clerks, one of whom processes claims.

The treasurer's office has requested resources for two additional positions for the division in the next legislative session, said Kathy Besser, Krolicki's chief of staff.

"Unclaimed Property has its challenges," she said.

The technology that has helped compensate for a small staff in the last few years is now "maxed out," she said.

While the office is quick to tout its accomplishments - more than doubling the annual number of claims paid since 2002 - its payout dollars have failed to keep pace with the huge amounts of property it absorbs every year.

That may be due in part to Nevada's unclaimed property Web site, which, among other things, limits searches to just 25 results, one of several apparent design flaws that complicate a potential owner's attempt to find unclaimed property.

According to one unclaimed property expert, the flaws combine to hide as much as 40 percent of the money being held by the state's unclaimed property division, effectively keeping the cash in state coffers.

"This is without a doubt the most convoluted program or procedure we've ever seen," said Jim Martin, a private investigator whose Indiana-based company locates unclaimed property across the country. "I think the people of Nevada are really getting shortchanged."

Martin said he had been researching a number of cases in Nevada about two years ago when the state's unclaimed property Web site was redesigned. The new site, he said, contained glitches that concealed several of those accounts, including one containing a $100,000 trust fund.

Under the new design, a two- to four-letter code identifying the type of property is often posted in lieu of the owner's first name. In some cases, that flaw could be merely misleading. In others, it could be a wall.

Owners with particular types of property, such as joint bank accounts (listed as JT) or trusts (listed as TRUS), will not, for example, find their accounts simply by using both first and last names in a search.

There is no explanation for the various codes on the Web site. The flaw is particularly harmful to owners with common last names, who, limited to 25 results, could use the codes to filter their searches.

These glitches are mostly remedied on a national unclaimed property database, www.missingmoney.com, which, for starters, returns up to 200 results per search. But Nevada's Web site does not directly link to the site, which contains records from unclaimed property programs in more than 35 states.

"It's kind of a racket out there," Martin said. "We believe they're (Nevada) deliberately building a wall to keep people from getting their money. And part of that process is scaring away anybody who might actually go out and find these people."

Treasurer-elect Kate Marshall ran on a reform platform, promising to restructure the Web site for just those reasons. She said she plans to keep a close eye on the unclaimed property division.

"My immediate concern is getting that money back to the people it belongs to," Marshall said. "Any good businessperson would come in and say, 'Is this operation running efficiently?' "

According to the treasurer's office, the Web site was changed in late 2003 to include the office's other functions, such as helping to administer the Millennium Scholarship and Prepaid Tuition programs. As a result, the site's computer server slowed to a crawl, said Tony Marcin, director of information technology for the treasurer's office.

With the Web site being unable to handle the visitor traffic, Marcin said, he cut the number of search results, conceding that such a measure prohibits some people - in particular those with common names - from finding property. "We're experiencing growing pains," he said.

A request for a new, larger server is contained in next year's budget, he said.

Krolicki offered a different take, saying that the limited search range discourages heir finders like Martin from doing business in Nevada.

"There are companies and individuals who try to make a living off of what should be a free service," Krolicki said. "We think that's wrong."

The flip side of that argument, though, is that without assistance from such companies, many are unlikely to find - or even be aware of - the unclaimed property owed them.

As for the coded entries, Marcin attributed the flaws to the manner in which banks and other companies submit the accounts to the state, with property codes sometimes listed in place of an owner's first name.

Still, acknowledging that missingmoney.com had found a way around the issue, he said that Nevada's unclaimed property division was looking at ways to clean up the unclaimed property reports it receives from various businesses and institutions.

All of this comes at a time when the state's unclaimed property fund has taken on new importance, notably as a source of dollars for the Millennium Scholarship program, started in 2000 by Gov. Kenny Guinn for high school students with B averages.

After the 2005 Legislature, Guinn, at Krolicki's urging, signed a bill into law that commits $7.6 million annually from the unclaimed property fund to the scholarship program.

Krolicki conceded the plan was not his first choice. Initially, he said, he proposed using a one-time $7.6 million shot from the unclaimed property fund to generate $100 million in bonds to keep the scholarship program solvent. The Assembly, however, rejected that idea.

The fund's annual obligation to the Millennium Scholarship program has not placed any extra pressure on the unclaimed property division, largely because the track record demonstrates that most of the property will never end up in owners' hands, Krolicki said.

"If we're getting $25 million to $35 million a year, there's very sufficient coverage from a revenue standpoint to meet that obligation," Krolicki said.

The millions of unclaimed dollars have afforded Krolicki a politically enviable public relations opportunity. Krolicki, for instance, has trumpeted how his office has helped to bail out the Millennium Scholarship program.

"The governor's legacy is Millennium Scholarships," Krolicki was quoted as saying in a 2004 newspaper story. "I hope mine in some part will be as the guy who helped save the Millennium Scholarships."

Nationwide, in fiscal 2005, states paid 1.3 million claims totaling $1.2 billion, according to the National Association of Unclaimed Property Administrators. Collectively, states hold $24 billion in unclaimed property.

In addition to Nevada's rapid growth and booming economy, federal passage of a corporate reporting law in 2002 has caused a spike in unclaimed property revenue. The law forced companies to tighten their auditing processes, leading them to turn over more unclaimed money to state governments.

Elsewhere, as states seek to capitalize on unclaimed money, programs have been rocked by scandal.

In Connecticut, a state auditors' report earlier this year cited the treasurer's office for a number of deficiencies in its Unclaimed Property Division, including failure to maintain proper records, delays in selling stock certificates and overpayment to a vendor hired to collect unclaimed property.

Most serious was the finding that the office had failed to post thousands of cases totaling $151 million in unclaimed property on its Web site since July 2004. In turn, owners trying to claim stock proceeds often received inaccurate payments because of the incomplete database, the report concluded.

In California, state Controller Steve Westly is a defendant in several lawsuits that charge mismanagement of the Bureau of Unclaimed Property, which his office administers. The lawsuits claim plaintiffs were cheated out of tens of thousands of dollars through questionable seizures of stock and property.

William Palmer, the attorney representing plaintiffs in those cases, says other states should see California as a cautionary tale. There, officials have "flipped the purpose of the program," from a lost-and-found to a revenue generator, he said.

"This is not a profit center," he said. "It's an effort to reunite people with their property."